Lawsuit alleges GOP chairman on the hook for $30 million

Updated 1:15 am, Monday, June 25, 2012

Jared Woodfill, chairman of the Harris County Republican Party, is facing a collection lawsuit from a New York law firm.

Jared Woodfill, chairman of the Harris County Republican Party, is facing a collection lawsuit from a New York law firm.

Photo: Nathan Lindstrom, Chronicle

Lawsuit alleges GOP chairman on the hook for $30 million

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The Republican Party prides itself on being a champion of personal responsibility, a perennial critic of plaintiffs' lawyers and the bedrock of fiscal conservatism, particularly when it comes to borrowing against the future to pay for current spending.

All of which would seem to put Jared Woodfill, chairman of the Harris County Republican Party, in an awkward position these days.

Woodfill, a plaintiffs' lawyer, is facing a collection lawsuit from a New York law firm alleging he owes nearly $30 million for a loan he defaulted on two years ago. The loan, in part, was to bankroll litigation Woodfill pursued against the BNSF Railway on behalf of some Somerville residents who blame the company for their health problems.

Woodfill denied that he defaulted on the loan and said he expects a possible settlement of the lawsuit within a few days.

According to the suit filed by LFR Collections, LLP, Woodfill and his firm, Woodfill & Pressler LLP, received a loan of $5 million in March 2006 from a hedge fund called Gerova Asset Backed Holdings, LP. That company went out of business in 2010 after the 2008-09 economic crash.

Company's claim

The most recent of several successor companies contends that Woodfill and his firm defaulted on the loan on Sept. 30, 2010. Because of accrued interest and fees, as well as increases in the size of the loan, the amount Woodfill and his firm owe has ballooned to $29,264,564, LFR Collections claims.

Woodfill contended the hedge fund extended a line of credit, that he never borrowed the full amount and that the principal has been repaid.

"The fund did not have the assets or funding that was promised," he said.

The plaintiff maintains that Woodfill and his firm agreed to repay the entire amount, plus annual interest of 19 to 21 percent.

A spokeswoman for Mayer Brown, the law firm representing LFR Collections, declined comment on the suit.

Label a GOP insult

In the decade that he has been chairman of the Harris County Republican Party, it has been common knowledge that Woodfill is a lawyer. It is less well known that he is a plaintiff's lawyer, a label that may rival "liberal" as an insult among Republicans who believe that plaintiffs' lawyers file frivolous lawsuits and win outrageous settlements from reputable companies. His profile on the party website notes that he and his partner, Paul Pressler, "have defended conservative principles through their law practice."

Ed Hubbard, a Houston lawyer who challenged Woodfill for the party chairmanship in 2010 on grounds of fiscal mismanagement, said he became aware of the lawsuit last month.

"If the allegations are true – and as an attorney, you always keep in mind that they're allegations – it does concern me," he said. "I'm concerned whether it will affect his ability to do a volunteer job to the extent necessary."

Three years ago, the Harris County Republican Party was in arrears, in part, because of a bleak fund-raising climate and internecine disputes over Woodfill's leadership. Hubbard said he is concerned only about the whether the party is well-managed, not Woodfill's professional activity.

Woodfill said the type of loan at issue is "fairly common among law firms, tech start-ups and real estate entities."

Although Woodfill insisted that the hedge-fund loan was not connected to a particular case, he said that without it he could not have taken on the nation's second-largest railway company. He has lost two of the related lawsuits and settled one.

'Finance the cost'

Loans from banks, hedge funds, finance companies and private investors bankrolling other people's lawsuits is not unusual, said Jeffrey L. Rensberger, a professor at South Texas College of Law. "Anytime there's a contingency, the lawyer has to somehow finance the cost of litigation, and it can be quite expensive."

Defenders of the practice argue that the inflow of money provides resources for plaintiffs who otherwise would not be able to do battle with well-funded corporations. They have a chance to get their claim vindicated, and, if the lawyer is successful, the investor shares in the winnings.

The practice "raises a lot of ethical questions," said Robert Schuwerk, a law professor at the University of Houston Law Center who specializes in legal ethics. The attorney potentially loses confidentiality and control over the case, since the investor is likely to insist on some say about how the money is being spent, Schuwerk said.

"There's also the problem of the financial pressure it puts on a lawyer to get to a certain outcome," Rensberger said. "Anybody under financial pressure, lawyer or not, can reach bad decisions."

Woodfill said his firm has spent more on the BNSF cases than on any previous litigation and is proceeding with the lawsuits. He defended the practice, if not the outcome of this particular agreement with the hedge fund.

"This is a business dispute," he said. "This type of loan is consistent with free-market principles."